Yesterday, another junior producer announced that it is entering into a strategic review process. Every time a company mentions the codename “Strategic Alternatives” in a news release, it is simply putting itself up on the block for sale and in the last few weeks, there’s been quiet a few!
Starting with one of the hottest oil plays in the WCSB, Second Wave Petroleum SCS.TO 0.00 [N/A] is the latest junior to put up the “For Sale” sign. The company even mentioned it was “in response to certain expressions of interest”. Not surprisingly, SCS sits on some of the best Beaver Hill Lake oil acreage at Swan Hills. In my opinion, CPG will most likely be the buyer as it has a JV agreement with SCS on 50,000 acres with a 60% working interest. The only other junior oil producer in the area with a significant land position is Arcan Resources. Since CPG already has a leash on Arcan Resources by owning ~20% of the stock, why would it let PennWest Petroleum or Pengrowth Energy move in for the kill? I expect CPG to roll up the Swan Hills area and consolidate it sooner or later. At 3,000 boe/d, SCS might end up getting married at a young age if you ask me as there’s still a lot of upside to the play, the company has the ability to double its production within a year.
In the Viking oil play, WestFire Energy WFE.TO 3.98 [0.00], another light oil weighted producer, has been on sale for a while with no sign of an interested party. Privately held Cutpick Energy which is another Viking producer, is also on the block looking for an acquirer. Who will consolidate the Viking players in WC Saskatchewan and Alberta?
Moving on to the Alberta Bakken, Bowood Energy BWD.V 0.00 [N/A] hung up it’s for sale sign. The Alberta Bakken play in Southern Alberta is still in its infancy and sill has potential for oil development. This has been proven by the latest results released by Argosy and DeeThree Exploration. Bowood has a nice land package that might attract suitors in its area such as Legacy (its JV partner) Shell or even Murphy. How much would a suitor pay for its 110,000 net acres of contiguous land base in the Alberta Bakken? This is a pure play on land value.
AngloCanadian Oil Corp ACG.V 0.00 [N/A] is another play on land. ACG is a junior company that holds 269 net sections of potential oil bearing Nordegg lands in West Central Alberta along with Beaverhill Lake and Duvernay prospective land base. All in all, the company estimates its NAV at $0.18/share.
In the Cardium, Anderson Energy AXL.TO 0.245 [0.00] has decided to throw in the towel. AXL is still gassy and has been trying to increase its oil weighting by focusing on its Cardium land base. The company has not gotten any recognition from the market leaving its share price languishing for months at a deep discount to NAV. Even though the company’s production is more than 60% weighted to gas, its 81 net sections of Cardium are most likely the bait that will attract a bigger fish.
While finding a suitor might not be easy for some of these juniors, by the looks of the merger & acquisition activity going on, 2012 might turn out to be a banner year! Notice how this wave of consolidation across the basin revolves around oil producers or oil bearing formations. The beauty of M&A is that once the deals get closed, the new liquidity that will be freed in the oil patch will end up in new investment opportunities or show up in other oil weighted producers which will reflected by rising valuations. Midway Energy got acquired today by WhiteCap Resources for $96,000/boed. Midway’s production weighting is 67% liquids which is similar to Hyperion Exploration’s liquids weighting. Applying this metric on Hyperion Exploration HYX.V 0.215 [0.00] returns a valuation north of $2.50 per share based on an average production of 1,700 boe/d. While I don’t expect to see this price on HYX any time soon, it is evident that the oil weighted producers are more valuable than what they currently trade for.
Do you hold any of the companies mentioned above? Did you recently buy any of the companies mentioned above?